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Mortgage bankers use the TBA market to hedge the risk associated with mortgage applicants not closing...

Mortgage bankers use the TBA market to hedge the risk associated with mortgage applicants not closing on their purchase.

True
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Answer #1

True

To be announced (TBA) is trading of forward-settling mortgage-backed securities (MBS). A TBa serves as a contract to purchase or sell an MBS on a specified date. The buyers and seller of TBA agree on parameters like issuer, maturity, coupon price, settlement date, etc.

In a TBA trade, the exact securities to be delivered to the buyer are chosen just before delivery, rather than at the time of the original trade.

The TBA process increases the overall liquidity of MBS market by taking thousands of different MBS with different characteristics and trading them through a handful of contracts.

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